Bitcoin BTC -0.45% ’s rolling 60-day correlation with ether has fallen below its 70% average for the first time in three years, indicating a shift in the relationship between the two largest cryptocurrencies.

The last time the metric dropped below this level was in early 2021, just as bitcoin was moving into price discovery after breaking its prior all-time high, according to data from Kaiko Research.

In correlation metrics between assets, the value of 1 (or 100%) represents a perfect positive correlation, meaning the assets move exactly in the same direction with the same magnitude. On the other hand, a value of 0 (or 0%) indicates no correlation, and a value of -1 (or -100%) represents a perfect negative correlation, where the assets move in exactly opposite directions with the same magnitude.

So, in this case, the drop below 70% means the prices of the assets are not moving in sync as much as they were over the last few years.

Bitcoin correlation with ether. Image: Kaiko Research.

Will spot ether ETF hype fuel a comeback?

The correlation decrease follows the launch of spot bitcoin ETFs in the U.S. last week, with attention turning toward a new narrative for the crypto market amid speculation that potential spot ether ETF approvals from the Securities and Exchange Commission could be next.

“It is no coincidence that this occurred on the day that the bitcoin spot ETFs started trading,” Kaiko said. “For months, the two crypto assets have been diverging in price activity as BTC benefited from ETF hype and speculation while ETH -0.45% experienced a relatively sluggish rally.”

“Since the Merge, Ethereum has had a bevy of narratives: deflation and ultrasound money, Layer 2s, liquid staking derivatives, re-staking, and now ETFs, with danksharding on the horizon,” Kaiko added. “Despite all of these competing narratives, it appears that the potential approval of spot ETFs is the strongest narrative right now.”

Last week, ether spot volumes on centralized exchanges surged to their highest level since the collapse of FTX, as reported by Kaiko. However, even with expectations surrounding a potential spot ETF this year, derivatives markets have not shown indications of traders preparing for a rally. Additionally, ether futures ETFs have experienced a few slow months of trading, Kaiko noted.

Weekly trade volume. Image: Kaiko Research.

Speculation over potential approval in May

Last week, Bloomberg ETF analyst Eric Balchunas estimated there is a 70% possibility for the approval of spot ether ETF funds from the SEC by May, with the first final decision deadline for the agency on an application from Ark Invest and 21Shares due on May 23.

However, investment bank TD Cowen said the SEC is unlikely to approve spot ether ETFs "any time soon," and JPMorgan doesn't see more than a 50% chance of a spot ether ETF approval by May.

“While ETFs were one of the most catalyzing narratives in BTC’s history, it remains to be seen whether ETH will be able to replicate this,” Kaiko said. “However, ETH has many narratives it can lean on; if ETFs don’t spur enthusiasm, perhaps new Layer 2s or the success of EigenLayer and restaking can.”

Uncertainties remain surrounding spot ether ETF approvals, given current SEC Chair Gary Gensler's stance that cryptocurrencies other than bitcoin are securities. However, Gensler’s predecessor, Jay Clayton, once mentioned that a small number of tokens might cease to be considered securities if they became broadly decentralized, and former SEC Director of Corporate Finance William Hinman also said in 2018 that, considering its decentralized nature, ether was not a security.

Ether’s price is down around 6% during the week since spot bitcoin ETFs began trading and is up 9% year-to-date. This compares to bitcoin falling around 10% over the past week, now down over 2% since the beginning of the year. Ether is currently trading at $2,480, according to The Block’s price page.

ETH/USD price chart. Image: The Block/TradingView.